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Jury convicts 'sovereign citizen' of false lien conspiracy, skirting tax laws - Lincoln Journal Star

Google IRS Federal Income Tax - Mon, 2014-08-04 21:05

Jury convicts 'sovereign citizen' of false lien conspiracy, skirting tax laws
Lincoln Journal Star
Federal jurors in Omaha convicted a Sarpy County woman Friday for filing false liens against two federal judges, Nebraska's U.S. Attorney and two of her deputies and an Internal Revenue Service special agent, the U.S. Justice Department said Monday ...

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Categories: Tax news

Everything You Need to Know About Corporate Inversions

Tax Foundation - Mon, 2014-08-04 13:15

Recently, Congress and the media have been abuzz over “corporate inversions.” Some worry that the recent wave of inversions will harm the U.S. and its tax base. Others point to them as evidence of a broken U.S. corporate tax code.

In order to help you sort through the chatter, here are some common questions and answers about corporate inversions, how they interact with our tax system, and why they matter:

What is an inversion?

In its simplest form, an inversion is simply the process by which a corporate entity, established in another country, buys an established American company. The transaction takes place when a foreign corporation purchases either the shares or assets of a domestic corporation or a when a U.S. corporation purchases the share or assets of a foreign corporation. Some inversions involve the purchase of both the shares of ownership and the corporate assets. The shareholders of the domestic company typically become shareholders of the new foreign parent company. In essence, the legal location of the company changes through a corporate inversion from the United States to another country. An inversion typically does not change the operational structure or functional location of a company.

How does an inversion benefit the U.S. corporation?

The change in legal residence from the United States to another country allows the company to take advantage of the more favorable tax treatment of the new home country. The most obvious benefit is that most countries do not have a worldwide corporate income tax system. The United States taxes income earned by U.S. corporations no matter where they earn that income, domestically or abroad.

For example, if a subsidiary of a U.S. firm earns $100 in profits in England, it pays the United Kingdom corporate income tax rate of 21 percent (or $21) on those profits. When those profits are brought back to the United States, an additional tax equal to the difference between the U.S. tax rate of 35 percent and the U.K. corporate rate of 21 percent ($14 in this case) is collected by the IRS. Between the two nations, the U.S. firm will have paid a total of $35, or 35 percent, in taxes on its foreign profits.

Most countries have what are called territorial systems that only tax income earned in their border. This means that any profits earned inside a country are taxed by that country and any profits earned outside of a country is not taxed. So if the U.S. corporation in the above example relocates to the United Kingdom, it would no longer be liable for that additional U.S. tax on its foreign profits.

It is also important to point out that a U.S. corporation that inverts will still need to pay tax on any income that it earned in the United States.

What is the impact of an inversion on employees?

A corporate inversion does not typically change the operational structure of a company. In most cases, an inversion simply means the addition of a small office in the company’s new foreign "home." Therefore, a re-incorporation rarely, if ever, leads to the loss of American jobs. In fact, to the extent that a corporate inversion leads to significant savings from a lower tax burden, employees may benefit through increased wages or more jobs.

How common are corporate inversions?

According to the Congressional Research Service, there have been approximately 76 companies that have either inverted or are planning to do so since 1983. 14 of those planned inversions have occurred in 2014 alone. 47 inversions have happened in past decade.

While the acceleration of corporate inversions sounds troubling, the number of inversions is actually really low compared to the total number of C corporations in the United States. According to most recent IRS statistics there are 1.6 million C corporations in the United States, a little fewer than 4,000 of them are publicly traded.

What is the impact of corporate inversions on federal tax collections?

If a corporation is able to invert, it would no longer be considered a U.S. corporation. As a result, it would no longer be liable for the U.S. tax corporate income tax on its income earned outside of the United States. For the corporation this means a tax savings, but for the Treasury it means lower revenues.

Judging by the rhetoric on the issue, one would assume that these inversions will lead to a large swath of corporate income being untaxed by the U.S. This really isn’t the case.

According to the JCT analysis of the “Stop Corporate Inversions Act of 2014,” a bill that aims to limit the ability of corporations to invert for tax purposes, this bill will raise $20 billion over the next ten years. Compare this to the $4.5 trillion the CBO predicts the corporate income tax will raise over the same period. In other words, corporate inversions are predicted to cost 0.5 percent of the corporate tax base over ten years.

Are corporate inversions a form of tax evasion?

Tax evasion is the avoidance of taxes through illegal means such as misrepresenting income on a tax return. Inversions are a legal means by which a company lowers its tax bill. When a company’s shareholders choose to re-incorporate in another country, it is a business decision like thousands of others that executives and shareholders must make every year. It can be thought of as a move similar a business relocating to Texas from California.

What is the underlying cause of the recent trend in corporate inversions?

As global operations become an increasingly important aspect of business, multinational corporations are under increasing pressure to lower their overall tax burden. There are two specific problems with the current U.S. corporate income tax that corporations are attempting to overcome through re-incorporation transactions:

The United States corporate income tax rate, 35 percent (39.1 percent combined with state rates) on corporate income, is relatively high by international standards. The U.S. corporate income tax rate is the highest rate among the 34 countries of the Organization for Economic Cooperation and Development (OECD). The fact that inversions have been accelerating reflects the fact that the U.S. is actually falling farther behind as time as gone on.

 

The second reason, is that the United States taxes domestic companies on their world-wide income, while most other countries tax their domestic companies only on domestically-earned income. This means that U.S. companies face a marginal tax rate of at least 35 percent on every dollar earned whether earned domestically or abroad, while their competitors do not.

Does re-incorporation lead to large capital gains taxes for shareholders, including employee-shareholders?

If a company’s re-incorporation is accomplished through a stock transaction, in which the overseas corporation purchases significantly all the shares of ownership in the domestic corporation, existing shareholders (whether or not they become shareowners in the new, foreign corporation) may face capital gains taxation at the time of inversion. This is due to section 367 of the U.S. Internal Revenue Code, added in 1998, which requires shareholders to recognize a gain on the exchange of stock for tax purposes.

This provision was added to the code as an "exit toll" with the intention of making inversions less palatable to U.S. corporations. Typically, corporate executives anticipate that the savings in corporate taxes from the inversion over the long-term is of greater value than the immediate capital gains hit. Thus, in theory, an inverted corporation’s stock should appreciate in value enough to overcome the wealth lost in capital gains tax.

One reason many corporations are considering re-incorporation in another country now is the relatively depressed value of their stock, due in part to the general drop in the broader equity markets. This fact means that shareholder losses to capital gains taxation on the transaction are minimized.

Categories: Tax news

Obamacare and Extenders: Examining the Draft 1040 for 2014

Tax Foundation - Mon, 2014-08-04 08:45

The IRS last month posted drafts of its new forms for the 2014 tax year. These should by no means be considered complete – Congress can often keep meddling with the tax code deep into December – but looking at the draft 1040 can remind us of the changes ahead. Here are four lines from the 2014 1040 that reflect changes.

Expiring Provisions:

Line 23 - “Reserved:” This line reflects the potential expiration of the tax deduction for certain expenses of elementary and secondary school teachers. It is a modest little deduction for teacher out-of-pocket expenses spent on education supplies for work. Obviously, this problem would better be solved by schools simply providing the teachers with the necessary supplies, but the deduction has a decent chance of being extended again.

Line 34 – “Reserved:” This line reflects the tuition deduction, which is also slated to expire. It is perhaps more likely to leave the tax code, given its redundancy with the American Opportunity Credit. Awkwardly, you were only allowed to take one or the other of these, meaning that some people had to calculate their taxes twice, once with each option, in order to compare. Given that complexity, and given that the tax code isn’t a particularly good way of making college more affordable anyway, this is probably a welcome change.

Obamacare Additions:

Line 46 – “Excess advance premium tax credit repayment. Attach form 8962:” This line is for those taxpayers who received too large of a premium subsidy. The Obamacare premium subsidies have two characteristics that make them unique among refundable tax credits. The first is that they are paid to insurers on a taxpayer’s behalf, not paid to the taxpayer. The second is that they are paid during the year, not at the time taxes are filed. If the amount paid out turns out to be wrong (for example, if the taxpayer doesn’t correctly guess his income when applying for the subsidies) the taxpayer will be on the hook for returning the excess money to the IRS.

Line 61 – “Health care: individual responsibility (see instructions):” This is the much-talked-about individual mandate. The fee for not having health insurance in 2014 is 1% of your yearly income or $95, whichever is higher. The payment amount will rise in future years. While the IRS instructions are not yet available, the instructions will likely cover that calculation. The instructions will also cover the menagerie of exemptions that the Department of Health and Human Services have put forth.

While the lines of the 1040 pertaining to Obamacare are likely to be very small in absolute dollar terms for most taxpayers, they do show that the broad structure of the bill is finally coming online. Most of the real money involved, though - an amount eventually expected to reach $100 billion per year - will come through the subsidies paid to insurers, not the 1040.

Categories: Tax news

Covington snags senior IRS official - The Hill

Google IRS Federal Income Tax - Mon, 2014-08-04 07:48

Covington snags senior IRS official
The Hill
At Covington, he'll advise companies on much of what he focused on at the IRS, including transfer pricing and a range of other federal income tax issues. “I believe I can help the firm position itself as a global trouble-shooter and risk manager for ...
Former IRS Official Sam Maruca Rejoins Covington's Tax PracticePR Newswire UK (press release)
Could Obama use the pen to tackle inversions Maruca heads to the private ...Politico

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Categories: Tax news

Former IRS Official Sam Maruca Rejoins Covington's Tax Practice - Insurance News Net

Google IRS Federal Income Tax - Mon, 2014-08-04 06:09

Former IRS Official Sam Maruca Rejoins Covington's Tax Practice
Insurance News Net
Mr. Maruca has practiced in the field of federal income tax for more than 30 years. He has represented clients in numerous business sectors, including information technology, pharmaceutical, biotechnology, communications, specialty materials and retail.

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Identity thieves exploit changes in federal law to file phony tax returns - SunHerald.com

Google IRS Federal Income Tax - Mon, 2014-08-04 06:03

Identity thieves exploit changes in federal law to file phony tax returns
SunHerald.com
She was referring to a significant change in federal tax law in 2013, enacted to accommodate same-sex taxpayers. Last August, the IRS and U.S. Treasury announced that legally married same-sex couples could now file their federal income taxes as married ...

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Categories: Tax news

Identity thieves exploit changes in federal law to file phony tax returns - News & Observer

Google IRS Federal Income Tax - Mon, 2014-08-04 05:20

Identity thieves exploit changes in federal law to file phony tax returns
News & Observer
She was referring to a significant change in federal tax law in 2013, enacted to accommodate same-sex taxpayers. Last August, the IRS and U.S. Treasury announced that legally married same-sex couples could now file their federal income taxes as married ...

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Categories: Tax news

Tax Talk: Volume 7, No. 2 July 2014 - Mondaq News Alerts (registration)

Google IRS Federal Income Tax - Mon, 2014-08-04 02:45

Tax Talk: Volume 7, No. 2 July 2014
Mondaq News Alerts (registration)
In a substantial departure from the previous regulations, the IRS replaced the "covered opinion" rules with a single, simplified approach, designed to subject all written federal tax advice to one standard. As part of this ... In the second, the IRS ...

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Berkeley psychologist sentenced to jail time for tax evasion - Daily Californian

Google IRS Federal Income Tax - Sun, 2014-08-03 20:33

Berkeley psychologist sentenced to jail time for tax evasion
Daily Californian
A 70-year-old Berkeley psychologist was sentenced Thursday to serve prison time and pay restitution after failing to report more than $1 million in income from his psychotherapy practice to the Internal Revenue Service, authorities said. Hugh Leslie ...

Categories: Tax news

'Borrowing' money from employees - The City Wire

Google IRS Federal Income Tax - Sun, 2014-08-03 15:03

'Borrowing' money from employees
The City Wire
The common taxes withheld are Social Security tax, federal income tax, and state income tax. For our discussion today, we will ignore the state income withholding rules and focus on the federal rules. The IRS refers to these withheld payroll taxes as ...

Categories: Tax news

IRS guidance: employee income tax correction for same-sex spousal health ... - Lexology (registration)

Google IRS Federal Income Tax - Sun, 2014-08-03 08:11

IRS guidance: employee income tax correction for same-sex spousal health ...
Lexology (registration)
Thereafter, the IRS issued guidance providing that same-sex spouses who were lawfully married under the law of any state — regardless of where those same-sex spouses resided — would be treated the same as opposite-sex spouses for federal tax ...

Categories: Tax news

IRS employees 'donating to Democrats' probing scandal - WND.com

Google IRS Federal Income Tax - Fri, 2014-08-01 15:06

WND.com

IRS employees 'donating to Democrats' probing scandal
WND.com
As WND reported, Mitchell testified Wednesday to the House panel that the only solution to the IRS abuses against conservative groups applying for tax-exempt status is to repeal the 16th Amendment, end the income tax and close down the IRS. “The IRS is ...

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State Tax Implications of Fourth Circuit Court of Appeals Decision Rejecting ... - JD Supra (press release)

Google IRS Federal Income Tax - Fri, 2014-08-01 14:25

State Tax Implications of Fourth Circuit Court of Appeals Decision Rejecting ...
JD Supra (press release)
The IRS observed that a contrary conclusion would, among other things, “raise serious constitutional questions.” The IRS further ruled that if the marriage is valid in the state it was entered into, it will be recognized for federal tax purposes ...

Categories: Tax news

Oil and Gas Subsidies or Sensible Cost Recovery?

Tax Foundation - Fri, 2014-08-01 13:15

The oil and gas boom of the past 5 years or so is widely seen as the brightest spot of an otherwise moribund U.S. economy. In fact, a group of economists from Purdue University recently found that without this boom the U.S. economy would still be in recession. Likewise, employment in the oil and gas sector has increased 40 percent since 2008 while overall employment has shrunk slightly.

The driving force is hydraulic fracturing (fracking) and other technologies that have opened up vast new resources throughout the U.S., including the Marcellus Shale in Pennsylvania and West Virginia, the Eagle Ford Shale in Texas, and the Bakken Shale in North Dakota. This is why you can earn $80,000 a year driving a truck in North Dakota, or $25 an hour waiting tables.

However, a new report from Taxpayers for Common Sense seems to suggest it’s all the result of “tax subsidies” that allow oil and gas companies to immediately deduct their investment costs. Titled “Effective Tax Rates of Oil and Gas Companies: Cashing in on Special Treatment”, the report finds that the effective federal corporate tax rate for oil and gas companies is 24 percent on average, “considerably less than the statutory rate of 35 percent, thanks to the convoluted system of tax provisions allowing them to avoid and defer federal income taxes.”

First, there is nothing special about a 24 percent effective tax rate. The average for all corporations is about 22 percent, according to the IRS, so if anything oil and gas companies pay an above average tax rate.

Second, the particular “tax subsidy” the report refers to is intangible drilling costs, which as they explain merely allows companies to immediately deduct, i.e. expense, the costs of drilling. That is not a subsidy, it is the proper treatment of a real and legitimate business cost. The corporate tax is a profit tax, and profit equals revenue minus costs. Labor costs are fully and immediately deductible, so why not other costs?

Taxpayers for Common Sense would prefer these companies delay drilling cost deductions for years and years, because otherwise “these companies are financing significant parts of their business with interest-free loans from U.S. taxpayers.” No, in fact it is the government that is getting interest-free loans from businesses by requiring them to delay deductions for legitimate business costs. Unfortunately, that is normally the case for most investment, because that is the normal depreciation system. The solution is to move towards expensing of all costs, not to remove expensing for this or that industry.

Follow William McBride on Twitter  

Categories: Tax news

Spain's PM says economic recovery 'better then expected'

Yahoo Tax - Fri, 2014-08-01 10:41

The Spanish economy is recovering "better than expected" and is now among Europe's best performers, although it still faces "numerous" problems, Prime Minister Mariano Rajoy said Friday. Economy Minister Luis de Guindos said on Tuesday the government planned to raise its 2014 and 2015 economic projections in September after stronger-than-expected performance over the last six months. The Spanish economy expanded by a better-than-expected 0.6 percent, up from growth of 0.4 percent in the first quarter, with the government crediting its reforms to the banking system and labour market for the stronger growth. His cabinet on Friday approved a major reform to lower both corporate tax and income tax for lower earners, which it hopes will boost economic growth.


Categories: Tax news

10 Tax Tips for New Business Owners - Fox Business

Google IRS Federal Income Tax - Fri, 2014-08-01 10:25

10 Tax Tips for New Business Owners
Fox Business
Business Taxes. According to the IRS, there are five genera federal Business Taxes. You may also be required to file and pay state income taxes, sales taxes and possibly excise taxes. Make sure you familiarize yourself with these responsibilities for ...

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IRS Guidance: Employee Income Tax Correction for Same Sex Spousal Health ... - The National Law Review

Google IRS Federal Income Tax - Fri, 2014-08-01 09:07

IRS Guidance: Employee Income Tax Correction for Same Sex Spousal Health ...
The National Law Review
Thereafter, the IRS issued guidance providing that same-sex spouses who were lawfully married under the law of any state — regardless of where those same-sex spouses resided — would be treated the same as opposite-sex spouses for federal tax ...

Categories: Tax news

IRS Can Help You Look After Kids - Fox Business

Google IRS Federal Income Tax - Fri, 2014-08-01 07:12

IRS Can Help You Look After Kids
Fox Business
... not taxable income to you, you cannot use those amounts to help further cut your tax bill. More information on the credit is available in IRS Publication 503, Child and Dependent Care Expenses, or Chapter 32 of IRS Publication 17, Your Federal ...

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Florida ID theft 'nightmare' part of $20B IRS fraud estimate - Bradenton Herald

Google IRS Federal Income Tax - Thu, 2014-07-31 17:53

MiamiHerald.com

Florida ID theft 'nightmare' part of $20B IRS fraud estimate
Bradenton Herald
The man in charge of collecting trillions in federal income taxes paid a visit Thursday to South Florida, where criminals have turned to stealing other people's identities and refunds into a recurring nightmare for taxpayers and his agency. John ...
Bramwell's Lunch Beat: SEC Turns to Deloitte for Top Accounting JobAccountingweb.com
Senate clears Highway Trust Fund patch, punting the issue until May Wyden ...Politico

all 18 news articles »
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What to Know about ObamaCare's Premium Tax Credit - Fox Business

Google IRS Federal Income Tax - Thu, 2014-07-31 15:50

What to Know about ObamaCare's Premium Tax Credit
Fox Business
As of right now, if you get your health insurance coverage through a federal or state health insurance marketplace, you may be eligible for a premium tax credit, which will reduce the total cost of coverage for low to medium income households. ... The ...

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